Apple has strong ties to these two businesses, and this could be a big reason to buy shares before they reach $1 trillion.
Apple (AAPL 0.69%) has long sat at or near the top of the most valuable companies in the world. The iPhone maker was the first company in history to reach a $1 trillion market cap back in 2018. Today, there are six investable companies with a market cap of $1 trillion or more.
Two more companies are knocking on the door of the $1 trillion club, though, and Apple may be a big reason why they join the group in the near future. Warren Buffett’s Berkshire Hathaway (BRK.A -0.86%) (BRK.B -0.80%) and chip-manufacturing giant Taiwan Semiconductor Manufacturing (TSM -5.26%), better known as TSMC, could each get a boost from Apple that pushes them over the milestone.
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Warren Buffett’s biggest stock holding
Berkshire Hathaway holds an equity portfolio worth about $300 billion. Of that, about 29%, $88 billion, is invested in Apple. That’s despite some significant sales from the Oracle of Omaha over the past three quarters, including about half Berkshire’s stake in the second quarter.
Apple remains a favorite investment of Buffett’s. Despite the share sales, he fully intends for Apple to remain the largest holding in Berkshire’s portfolio for the foreseeable future. In 2023, he called Apple “a better business than any we own,” referencing the portfolio of wholly owned companies that fall under the Berkshire Hathaway conglomerate.
As long as Berkshire’s stake in Apple remains unchanged (far from guaranteed), even a relatively small increase in Apple’s share value can add billions to Berkshire’s market cap. The conglomerate already has a market cap approaching $950 billion. A strong performance from Apple stock in the second half of the year could be the thing that pushes it to $1 trillion.
Berkshire Hathaway stock currently sports a price-to-book ratio of 1.6 and a forward price-to-earnings (PE) ratio of 19.4. Both are fair prices to pay for a conglomerate that is full of businesses with better-than-average growth prospects. With Buffett’s consistent share repurchases, massive equity, and Treasury holdings, the prices look even more attractive.
A key supplier for Apple
Apple has moved toward designing more and more of the silicon chips in its devices since the release of the iPhone in 2007. Not only is it designing more content for the iPhone itself, but it’s expanded its in-house designs to all of its growing portfolio of devices, including Macs. And the company manufacturing those chips for Apple, TSMC, is a prime beneficiary of Apple’s push to design more of its own silicon.
TSMC could get an additional boost this fall. Apple unveiled Apple AI at its Worldwide Developers Conference in early June. Many Apple fans and analysts are excited about the new AI features, but there are some important details to know.
First, Apple AI is only available on the most recent iPhone 15 Pro and Pro Max. It’ll also be available on the forthcoming lineup of iPhone 16s. That could spur a strong upgrade cycle relative to years past. Strong iPhone sales mean strong sales for TSMC. Despite recent growth stemming from its AI chip production, smartphone chips still accounted for one-third of its revenue in Q2 when smartphone sales are typically slower. A surge in demand for smartphone chips heading into the end of the year from Apple could push revenue much higher for the company.
Second, some Apple AI features rely on securely transmitting data to Apple servers to process AI prompts and queries. Apple is using its own silicon on these servers as well. While Apple’s needs may be modest at the launch, they have the potential to scale quickly, especially if Apple opens the protocol to third-party developers. That could push its demand for TSMC chips even higher.
If TSMC gets a big sales bump from a successful iPhone 16 and Apple AI launch, it could push the company to a $1 trillion market cap. The stock currently touts a market cap of around $850 billion, but it recently flirted with a trillion-dollar market cap. The current pullback looks like a great buying opportunity for the stock.
Should investors just buy Apple stock?
While both of the above companies have significant ties to Apple, investors may be wondering if it makes more sense just to buy Apple shares directly. To be sure, Apple stock looks attractive at its current price despite a forward PE of 29.5 times. The stock arguably merits a premium thanks to its strong cash position and free cash flow generation, which management uses to repurchase shares. That provides a nice boost to earnings per share over time.
But Berkshire Hathaway provides investors access to Warren Buffett’s entire portfolio of diverse businesses, including those wholly owned by the conglomerate. Meanwhile, TSMC is one of the smartest ways to invest in the growing demand for AI chips, as it’s the largest chip manufacturer in the world, producing the most cutting-edge chip designs.
All three fit a certain need for investors, and there’s nothing saying you can’t buy all of them.
Adam Levy has positions in Apple and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.